Did you say jobless growth? The often-voiced fear that the economic boom has not led to ample job creation is an exaggeration. The new Organization of Economic Cooperation and Development (OECD) Economic Outlook 2007 that was made public earlier this month is further proof of this.
Four facts stand out in this report. First, the steady rise in annual employment (roughly 11 million new jobs every year over the period 2000-05) is a result of the unleashing of “animal spirits” by economic reforms. Second, India has created more new jobs than the other major developing countries, including China’s seven million new jobs a year. This flies in the face of the usual criticism that the Indian growth model creates less jobs than the Chinese one. Third, the spurt in job creation is not going to go away anytime soon. There are “greenfield” employment opportunities in large swathes of India, ones that can propel growth in the decades to come. Finally, if one looks at the trajectory of growth and the pattern of labour use in India, they are broadly in sync with established trade theories.
Official statistics tell the same story. National Sample Survey data from the 61st round clearly shows that employment growth in the six- year period from 1999-2000 to 2004-05 was faster than the five-year period before it.
Yes, farm employment does continue to be a worry. It is a fact that agriculture contributes less and less to the GDP, even as the number of people employed in it remains near constant. Growth in services is the most promising way to shift this population. One may quibble about the “quality” of such service jobs, but at least they provide employment where none existed before.
There are large parts of the country where the movement of people out of agriculture and into services is taking place spontaneously. In Haryana and Punjab, for example, large numbers of small farmers are selling their land and moving into transport, catering and other services.
The confusion about the number of jobs arises here: government enumerators largely leave these people outside the census net. No longer classed as farmers, these individuals still maintain their homes in villages, while being employed elsewhere. The number of such jobs is large and, in rural India, one job results in an entire family sharing the benefits. Employment growth, from this perspective, is far more inclusive than is commonly understood.
The number and types of jobs created show that there is something for everyone. For example, away from the humdrum of high-end jobs requiring skill sets the rural populace does not possess, industrialization offers a way out for a large number of people at the low-end of the skill spectrum.
Yet, our policymakers persist in “doing something about agriculture.” Once industrialization is on its way, agriculture will sort itself out.
If anything, these facts vindicate the economic rationale behind reforms. Both India and China are using the factors of production that are available cheaply in their territories. One may argue that this does not say much as both have abundant supplies of labour though, maybe, China has a bit more of capital.
This would be an incomplete story. The facts are wellknown but, when knit together, the picture becomes clear. India has a huge pool of English-educated youth. It is exporting those services which require a skill-set that is based on this education. Hence it is specializing in service jobs. China, on the other hand, too has a pool of such people, but much smaller, making it difficult to reap scale economies and network externalities that go with such work. It has a strong industrial base coupled with a huge number of people with undifferentiated skills, suitable to industrial growth. That is also what traditional trade theory, amended to take care of labour specialization, has to say.
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